Risk assessment

Growth will be lower in 2018

The exceptional performance of 2017 is unlikely to be repeated in 2018. The poor performance in the first quarter will only be partly offset by a recovery over the rest of the year. As a result, the economy is approaching potential growth estimated at around 1.5%.

Economic growth is mainly driven by domestic demand. Household consumption remains sustained. One of the key factors behind this dynamism is the strength of the labour market, which has seen increasing employment and strong wage growth. In late 2017, the amount of open positions stood at 1.1 million: an all-time high. Labour demand is especially high in the trade, education, and health sectors, accompanied by high levels of demand in the manufacturing industries and for part-time workers. Therefore, by the end of 2018, the threshold of 45 million people in employment could be reached for the first time, with the unemployment rate set to continue its downward trend towards 5%. In addition, households are benefitting from an increase in family allowances, as well as the reduction in health insurance and pension contributions.

Despite the slowdown in growth in public consumption; due to the decline in the number of refugees received, public investment in social housing and infrastructure remains sustained and is accompanied by solid growth in the construction of private housing – although this latter is coming up against capacity saturation. Conversely, despite the high rate of production capacity utilisation, business investment in equipment and buildings could slow due to uncertainties related to Brexit, Italy and the US government's trade policy, in addition to sanctions against Russia and higher energy prices. Exports, especially of capital goods, are likely to slow, while imports of consumer goods should remain supported by domestic demand. In addition, the contribution of foreign trade to growth should remain close to zero. In this context, German payment behaviour is expected to remain generally good. The number of business failures is expected to fall slightly (3%, after a fall of more than 7% in 2017).

Public and external accounts in surplus

Despite a slight fiscal loosening against a background of lower social contributions and higher tax thresholds and family allowances for households, and increased investment expenditure on transport, energy and early childhood services, the government balance will continue to show a small surplus, thanks to the positive impact of buoyant activity on revenues. The maintenance of a significant primary surplus (i.e. excluding debt interest) and of a positive differential between growth and the average interest rate should result in another reduction in the debt burden. The current account balance is set to remain broadly in surplus thanks to a massive trade surplus. The balance of services traditionally posts a deficit, predominantly due to tourism. The income balance will likely remain in surplus, with the income generated by the considerable and growing investments abroad (thanks to recurring current account surpluses) being higher than remittances from immigrants and investors.

A new Grand Coalition, but more fragile

After the September 2017 general elections, the Germans were faced with the longest negotiations to forming a new government since the Second World War. After the failure of talks between the Conservatives, the Liberals, and the Greens, discussions between the Conservatives (CDU-CSU) and the Social Democrats (SPD) led to the formation of a new Grand Coalition government in February on the basis of a 170-page contract. Nevertheless, the small majority of the Coalition parties in the Bundestag, as well as the breakthrough of the far-right (which prompted the right wing of the CDU and the Bavarian CSU to double down on immigration), weaken Chancellor Angela Merkel's position. The government will likely stick to the terms of the contract, particularly in terms of housing, education, family, and retirement, especially given that the contract includes clause for review after two years. Nevertheless, the healthy state of the budget offers significant room for manoeuvre.

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Last update : July 2018

Payment

Bank transfer (Überweisung) remains the prevalent means of payment. All leading German banks are connected to the SWIFT network which enables them to provide a quick and efficient funds transfer service. SEPA Direct Debit Core Scheme and the SEPA Direct Debit B2B are the new forms of direct debit.

Bills of exchange and cheques are not used very widely in Germany as payment instruments. For Germans, a bill of exchange implies a critical financial position or distrust in the supplier.

Cheques are not considered as payment as such, but as a "payment attempt": as German law ignores the principle of certified cheques, the issuer may cancel payment at any time and on any grounds. In addition, banks are able to reject payments when the issuing account contains insufficient funds. Bounced cheques are fairly common.

As a general rule, bills of exchange and cheques are not considered as effective payment instruments, even though they entitle creditors to access a "fast track" procedure for debt collection in case of non-payment.

Debt collection

Amicable Phase

The amicable collection is an essential step to the success of collection management. The collection process generally begins with the debtor being sent a final demand for payment, via ordinary or registered mail, reminding the debtor of their payment obligations.

According to the "Law for the acceleration of due payments" (Gesetz zur Beschleunigung fälliger Zahlungen)a debtor is deemed to be in default if a debt remains unpaid within 30 days of the due payment date and after receipt of an invoice or equivalent request for payment, unless the parties have agreed to a different payment period in the purchase contract. In addition, the debtor is liable for default interest and reminder fees upon expiry of this period.

Debt collection is recommendable and common practice in Germany.

Legal proceedings

Fast-track proceeding

Provided the claim is undisputed, the creditor may seek order to pay (Mahnbescheid) through a simplified and cost-efficient procedure. The creditor describes the details of their claim and is subsequently able to obtain a writ of execution fairly quickly via the Online-Dunning Service (Mahnportal), direct interfaces or (only for private individuals) pre-printed forms. Such automated and centralized (for eachBundesland,federal state) procedures are available all over Germany.

This type of action falls within the competence of the local court (Amtsgericht) for the region in which the applicant’s residence or business is located. For foreign creditors, the competent court is the Amtsgericht Wedding (in Berlin). Legal representation is not mandatory.

The debtor is given two weeks after notification to pay their debts or to contest the payment order (Widerspruch). If the debtor does not object within this timeframe, the creditor can apply for a writ of execution (Vollstreckungsbescheid).

Ordinary proceedings

During ordinary proceedings, the court may instruct the parties or their lawyers to substantiate their claim, which the court alone is then authorised to assess. Each litigant is also requested to submit a pleading memorandum outlining their expectations, within the specified time limit.

Once the claim has been properly examined, a public hearing is held at which the court passes an informed judgement (begründetes Urteil).

The losing party will customarily bear all court costs, including the lawyer’s fees of the winning party to the extent that those fees are in conformity with the Official Fees Schedule (theRechtanwaltsvergütungsgesetz/ RVG). In the case of partial success, fees and expenses are borne by each party on a pro rata basis. Ordinary proceedings can take from three months to a year, while claims brought to the federal Supreme Court can reach up to six years.

An appeal (Berufung) may be brought against the decision of the Court of First Instance if the objected amount in dispute exceeds EUR 600. An appeal will also be admitted by the Court of First Instance if a case involves a question of principle or necessitates revision of the law in order to ensure ’consistent jurisprudence’.

Enforcement of a court decision

Enforcement may commence once a final judgement is made. If debtors fail to respect a judgment, their bank accounts may be closed and/or a local bailiff can proceed with the seizure and sale of their property.

For foreign awards, in order to obtain an exequatur, the creditor needs a notarized German translation of the decision which also has to be recognized, an enforcement order of this judgment, and an execution clause. Judgments of courts of member states of the European Union are recognized without further procedure – unless certain restrictions arising from European law are applicable.

Insolvency proceedings

Out-of Court proceedings

Debtors may attempt to renegotiate their debts with their creditors, which helps to protect debtors from early payment requests. However, the procedure is in the creditors’ interest as it can be faster and tends to be less expensive than formal insolvency.

Sustainable restructuring

Following a petition filed before insolvency court on the basis of illiquidity or over-indebtedness, the court may open preliminary insolvency proceedings, where it appoints a preliminary administration aimed at exploring the chances of restructuring the company. If the administration authorizes this restructuration, it then initiates formal proceedings and nominates an administrator in charge of continuing the debtor’s business whilst preserving its assets.

Liquidation

Liquidation may be initiated upon demand of either the debtor or the creditor provided that the debtor is unable to settle its debts as they fall due. Once recognized through a liquidation decision and once the company has been removed from the register, the creditors must file their claims with the liquidation administrator within three months of the publication.

Retention of title

Retention of title is a written clause in the contract in which the supplier will retain the ownership over the delivered goods until the buyer has made full payment of the price. There are three versions of this retention:

Simple Retention: the supplier will retain the ownership over the goods supplied until full payment is made by the buyer.

Expanded Retention: the retention is expended to further sale of the subsequent goods; the buyer will assign to the initial supplier the claims issued form the resale to a third party.

Extended Retention: the retention is extended to the goods processed into a new product and the initial supplier remains the owner or the co-owner up to the value of his delivery.